Mortgage Meltdown: What Happens When Government Tries to “Do Good”

As we’ve touched on several times in the past here at Red Clay, the mortgage meltdown is not a simple story of greedy lenders as villains with government as mere observers who are now swooping in to save the "victims."

This Washington Post article provides further insight:

"In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.

Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing."

Spokesman Brian Sullivan said the agency and Congress wanted to increase homeownership among underserved families and could not have predicted that subprime lending would dominate the market so quickly.

"Congress and HUD policy folks were trying to do a good thing," he said, "and it worked."

Ah yes, good old government trying to do a "good thing." Another classic case of unintended consequences – in this case government forced lenders to extend mortgages to risky borrowers in the name of "equity" – so as to increase homeownership among previously "underserved" communities.

"The market knew we needed those loans," said Sharon McHale, a spokeswoman for Freddie Mac. The higher goals "forced us to go into that market to serve the targeted populations that HUD wanted us to serve," she said.

Yet another disaster that can largely be attributed to the liberal doctrine of attaining "equity" through government intervention. When will the "progressive" government fundamentalists admit to government failure?